The economy worse off since 1978

3072013

Can’t eat money

I was only a little tacker in 1978, and as any little tacker, I was blissfully unaware that I had just lived through a world-changing event. Just like that blissfully ignorant child, most people have no idea how important that year was.

It was around that year that humanity exceeded the planet’s capacity to sustain itself in perpetuity1. As I’ve just discovered today, it was also the same year that the per-capita Genuine Progress Indicator (GPI) peaked.

Now for a little detour and disclaimer before I explain all that. I’m not an economist, but I have a dabbled with the odd economic concept and bolted-on economic sub-routine in a few models I’ve written. Some would argue that conservation (i.e., the quest and methods needed to conserve biowealth) is almost entirely an economic pursuit, for economics is the discipline that attempts to explain (and modify) human behaviour. I tend to agree insofar as we now know enough on the biological side regarding how species become threatened and go extinct, and what kind of things we need to do to avoid losing more of the life-support system provided by biodiversity. Being completely practical about it, one could even argue that the biology part of conservation biology is complete – we should all now re-train as economists. While that notion probably represents a little hyperbole, it does demonstrate that economics is an essential endeavour in the fight to conserve our home.

Almost everyone has heard of ‘GDP’ – the Gross Domestic Product – as an indicator of economic ‘performance’, although most people have little idea what it actually measures (I’m including businesspeople and politicians here). GDP is merely the sum of marketed economic activity, which is only one small facet of the economy. For example, growing a tomato and preparing a salad for your family with it is not included, yet buying a frozen meal in the supermarket is. Even an oil spill increases GDP via increased expenditures associated with clean-up and remediation, when clearly it is not a ‘good’ thing for the economy on the whole because of the lost opportunities it causes in other sectors.

GDP clearly doesn’t measure all the positive aspects of economic activity, nor does it come close to measuring social or economic welfare. In other words, it’s a pretty shit measure of the totality of economic activity.

While there are many other measures out there, a new paper demonstrates that the Genuine Progress Indicator (GPI) is perhaps a more appropriate measure of a society’s economic performance. What is the GPI? It is a consolidated measure of economic, environmental and social elements. It too has its flaws and critiques, but no single indicator can ever hope to be a perfect measure. GPI includes personal consumption expenditures like the GDP, but it penalises them for skewed income distribution, environmental costs, crime and pollution (amongst others). It is therefore a much better index of economic welfare.

In their new paper in Ecological Economics, Kubiszewski and colleagues use this more inclusive and representative economic indicator to show that globally (i.e., for the 17 countries representing > 50% of the world’s population and GDP for which data are available), the per-capita GPI also peaked in 1978. While per-capita GDP has largely continued to increase uninterrupted over the last 60 years, GPI/capita shows instead that we are now losing economic welfare. So while we might be expending more in markets, we are doing more damage than making economic gain.

I must reiterate that this paper is not about biodiversity, extinction or even environmental trends. It’s a fairly involved economic analysis that might be lost on many conservation-minded. However, I think it clearly demonstrates to the so-called economic ‘rationalists’ out there that environmental degradation has real costs. Making more and more money is superfluous if you can’t enjoy the fruits of that expenditure.

As the ‘proverb‘, attributed to Canadian Cree Alanis Obomsawin and made famous by Greenpeace in the 1980s, goes:

“When the last tree is cut, the last fish is caught, and the last river is polluted; when to breathe the air is sickening, you will realise, too late, that wealth is not in bank accounts and that you can’t eat money.”

7 responses

[…] I’ve also argued more times than I care to admit that most conservation scientists could give up their day job tomorrow without fear of exacerbating the biodiversity crisis. The main reason for this sobering conclusion is that we already have a pretty good grasp of what causes species to dwindle and go extinct (e.g., habitat loss, fragmentation, over-exploitation, genetic erosion, climate change, etc.), such that the ‘problem’ of biodiversity erosion is no longer a result of lack of scientific knowledge. Any hope we might have at all to slow the extinction crisis now is to manage human society and the decisions it makes over the coming decades and centuries, including inter alia major changes in how we grow our food, produce our energy, manage our population growth, elect our leaders, educate our children and run our economies. […]

[…] details of a balanced economic system, i.e.: a system in which productivity (and consequent environmental damage) is balanced against the capacity of the total env…. With gross national product set by environmental limits, increases in material standards of living […]

[…] How successful is Australia? You’d think we’d have a fairly easy answer to that – you could get it by looking at our gross domestic product, or GDP. But over the years we’ve gained a number of other success indicators, from health and wellbeing, to the environment, and they often tell a different story. […]

[…] How successful is Australia? You’d think we’d have a fairly easy answer to that – you could get it by looking at our gross domestic product, or GDP. But over the years we’ve gained a number of other success indicators, from health and wellbeing, to the environment, and they often tell a different story. […]

[…] We’ve failed to arrest the global decline of biodiversity, and even our protected areas are gasping, with about half of tropical protected areas losing their biodiversity, and national reserve systems [at least, in Australia] dying a death of a thousand cuts. It’s not just the biodiversity itself that’s suffering – society is losing trillions of dollars worth of biowealth and our natural wealth-adjusted index of economic prosperity has been declining since 1978. […]

This is an excellent post identifying the root problems, yet I have a small (and constructive) disagreement.

As Paul Hawken wrote, neoclassical economists “have created an economic system that tells us it is cheaper to destroy the Earth than it is to maintain it”. Therefore, rather than retraining ourselves as economists we should be retraining economists to acknowledge ecology.

The discipline of ecological economics–which acknowledges the primacy of natural capital–has been around for a long time but, as far as I can tell, it remains relegated to the sidelines. For that discipline to infiltrate the mainstream we need to reach those neoclassical economists that are still stuck in the 1870s, when their discipline developed under the assumption of infinite natural resources and the relationship between fossil fuel consumption (the ultimate economic driver of human history) and climate change had yet to be elucidated.

As much as I like this post, it is preaching to the converted. At a practical level we need to publish opinion pieces on blogs or journals that target mainstream economists.

“It (GNP or GDP) counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.

It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.